Financial markets seem unconcerned about America's high debts
a right-leaning economist raises the alarm about the apparently parlous state of America’s public finances. The subject gripped Washington in the early 2010s but has since been mostly disregarded. At 78% of, America’s net public debt is high, if not yet huge. Thanks to President Donald Trump’s tax cuts, the federal deficit will exceed 4% ofthis year, a level that is more typical after economic slumps than in the benign conditions seen today, with unemployment at 3.6%.
That is an overstatement. The central observation of fiscal doves is that interest rates are very low by historical standards, and are not expected to rebound any time soon. As a result, though debt has grown as a share of, interest payments are near their historical average . Most important, rates are lower than the nominal growth rate of the economy . In such circumstances a debt will shrink as a share ofover time.
According to Mr Furman and Mr Summers, the fear that government debt is discouraging private investment is based on an “absurd diagnosis of today’s economic problems”. The real issue, they say, is that America’s interest rates might again fall to near-zero, at which point the Federal Reserve could not lower them any further. Any attempt to cut debt and deficits today might weaken the economy and bring that constraint into view.
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